Hartford Business Journal

January 25, 2021

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HartfordBusiness.com | January 25, 2021 | Hartford Business Journal 31 T he holidays brought plenty of cheer with the passage of the federal Consolidated Appropriations Act (CAA), which combined the $900 billion in stimulus relief for the COVID-19 pandemic and $1.4 trillion in omnibus spending. The package provides an abundance of economic gifts for businesses, including the highly anticipated deductibility of Paycheck Protection Program (PPP) expenses, expansion of the Employee Retention Credit (ERC) and another round of stimulus dollars. The legislative fix for expense deductions, which overrode recent IRS rulings, is one of the largest bonuses of the CAA. The act also clarifies that the loan forgiveness is to be treated as tax-exempt income, which creates a tax basis for partnership and S corporation owners. However, it is likely not recognized until the debt is forgiven (in 2021 for most) possibly creating some tax timing issues pending further guidance. The CAA also reopened the PPP for new borrowers and second round loans. However, for repeat borrowers, the program's requirements are more restrictive as a qualifying entity must have both a reduction of gross revenue of 25% for any quarter of 2020 compared to 2019 and less than 300 employees. The maximum loan is reduced from $10 million to $2 million for this round and is again based on 2.5 times average monthly payroll; 3.5 times average monthly payroll for the restaurant and hospitality industries with some added flexibility for seasonal employers. Previous PPP recipients must also use their full first round loan before getting another loan and again must certify as to the economic necessity of the loan. More considerations Another holiday bonus is the expansion of the non-payroll expenses that qualify for PPP forgiveness, including operational expenses (primarily software and cloud services) as well as certain supplier costs and worker protection equipment. W ith the continuous advances in technology, it's easier than ever for businesses to get work done remotely. Since so many organizations have spent time working in a remote en- vironment due to COVID-19, we've quickly learned what works for this unique situation and which areas need improvement. Many organiza - tions have already adopted a per- manent remote-work model moving into the future. Here are a few reasons why re- mote work is here to stay. Larger talent pool In the past, working remotely was considered "normal" for entrepre - neurs or independent contractors in the gig economy only, but organiza- tions wanted employees, and con- sultants, to be on-site and working in the office. This greatly narrowed the talent pool. Now, organizations can ex - pand their horizons and look outside of their immediate area for standout expert talent. Since employees have been working remotely, organizations have seen a significant increase in productivity and communication, making employers more open to hiring or partnering with people who are located throughout the U.S. We're also adopting more creative ways to utilize remote-work technol - ogy, giving businesses access to a much larger, more diverse talent pool. Leadership tip: Develop a hybrid talent strategy, one in which you leverage consultants from the gig economy as well as your own em - ployees. Increased flexibility While remote work may not have been a popular idea for organiza - tions prior to the pandemic, through trial and error it's safe to say we've learned a lot. Many people found they're actu - ally working best from the comfort of their home, some feel they have limited distractions that previously arose in the office and others hope to continue their job permanently remote. In any case, the flexibility that comes with working from home is no secret. We've seen this a lot with parents having to be home with chil - dren while they are away from the classroom. This isn't to say remote work is the only solution to create flexibility in a position, however it could mean higher productivity and lower employee turnover. Recent statistics show that 40% of people feel the greatest benefit of remote work is the flexible schedule and organizations allowing remote work have a 25% lower em - ployee turnover rate than those who don't. Leadership tip: Consider how your or- ganization can create a hybrid plan that allows employees to continue work- ing remotely a few days a week. Cost savings Whether you're working for a large corporation or a small startup, operational costs will always exist. Since the transition out of the office we have seen significant cost sav- ings in multiple areas. First, many organizations were able to downsize or completely eliminate office spaces, removing rent or the cost to purchase office space from their expenses. There were also cost savings around talent. Organizations were better able to tap into the gig economy and leverage outsourced talent versus hiring full-time employ- ees. This means organizations are hiring independent consultants that are experts in their field for projects and interim needs. Leadership tip: Think about your organization's projects and interim needs and ask yourself whether a full-time employee is required, or if a highly skilled consultant is the better option. Leveraging outside talent on an "as-needed" basis may be best in both the short and long term. While we don't know what chal- lenges face us in 2021, we do know remote work isn't a trend. It's here to stay and will be a key differentiator for organizations that want to build the best teams with the best talent from around the world. Hema Crockett and Jamie Jacobs are the co-founders of Gig Talent, a human resources and talent- recruitment agency. OPINION & COMMENTARY EXPERTS CORNER Financial implications of federal $2.3T stimulus, spending plan EXPERTS CORNER Here's why remote work is here to stay Jim Mahoney Hema Crockett Jamie Jacobs By Jim Mahoney By Hema Crockett and Jamie Jacobs Given the previous expansion of the covered period to 24 months, this may not be of significance to many who had ample payroll to cover the entire loan forgiveness. But, as we untangle the ERC provisions, the interplay gets interesting. The CAA extends and expands the ERC, which is a refundable tax credit that encourages businesses to keep employees on their payroll, through June 30, 2021, including: • Allowing PPP recipients to also take the ERC where previously it was an either/or rule; • Lowering the gross receipts reduction test to 20% for 2021 from 50% in 2020; • Increasing the credit rate from 50% for 2020 to 70% of qualified wages for 2021; • Doubling the cap on wages from $10,000 per employee for 2020 to $10,000 for each of the first two quarters of 2021; • Increasing from 100 to 500 the number of employees counted for determining qualified wages. With these changes, the total credit is now potentially $19,000 per employee over the 18-month period instead of $5,000, and can be in addition to the PPP loan. An employer whose operations were partially suspended due to a COVID-19-related governmental order does not need to meet the gross receipts test. This is significant in that if you had been subject to a 50% decline in 2020, there is a good chance you would not benefit from both the PPP and ERC provisions due to lack of qualifying payroll expenses. If you meet the criteria of a partial shutdown or interruption, then modeling out the interplay of the PPP and ERC is critical since the qualifying expenses and time periods will most likely overlap and you can't use the same payroll dollars for both the forgiveness and credit. If you believe you can qualify for both the ERC and PPP, you will want to review your projections to maximize the benefit as the ERC ends on June 30, and you must apply for the PPP by March 31, so you will again face competing forces and overlapping timelines. Jim Mahoney is CPA managing partner of Glastonbury accounting and advisory firm MahoneySabol.

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